| The emergence of power retailers, such as Wal-Mart, Best Buy, Home Depot and department store chains like JC Penney and Macy's, has significantly changed the competitive landscape in the retailing industry. This aim of this dissertation is to analyze how power retailers impact the contracts in and, indeed, the structures of, distribution channels.;The first essay studies the dominance strategies of power retailers. They frequently dominate other small retailers by explicitly undercutting on price ("market dominance"). Some also pursue the strategy of dominating the distribution channel by participating in setting the wholesale price ("channel dominance"). Wal-Mart seems to simultaneously exercise both market and channel dominance ("dual dominance"), while others, e.g., Sears and Costco, seem to exercise channel dominance alone. Upstream manufacturers complain of being squeezed by the power retailers but, at the same time, many have profitable partnerships with them, e.g., P&G with Wal-Mart. In this essay, using a game-theoretic model, I investigate the dominance strategy (market, channel or dual dominance) that a self-interested power retailer should pursue, and how this decision affects other members of the channel. I find that dual dominance is not always the best strategy for a self-interested power retailer and, surprisingly, it can also prefer channel dominance alone, under certain conditions. I also find that it is quite likely that all channel members may simultaneously benefit from the exertion of dominance by power retailers.;The second essay is motivated by the "store-within-a-store" phenomenon, where retailers essentially rent out their retail space to manufacturers and give them complete autonomy over pricing and in-store service provision. This is an intriguing channel arrangement which is seen in several product categories in department store chains. In this essay, I use an analytical model to investigate the economic incentives that a retailer faces while deciding upon this arrangement. A store-within-a-store works like an integrated channel and, therefore, the retailer allows manufacturers to set up stores-within-a-store in categories where the degree of inter-brand competition is small. This suggests that the store-within-a-store phenomenon emerges when a power retailer, ironically, gives manufacturers autonomy in its retail space. |
